1. Chapter 2: Overview of Business processes
April 19, 2017
Dr. Fred Barbee

2. Chapter 2: Overview of Business processes
April 19, 2017
Explain the three basic functions performed by an accounting information system (AIS).
Describe the documents and procedures used in an AIS to collect and process transaction data.
Dr. Fred Barbee

3. Chapter 2: Overview of Business processes
April 19, 2017
Discuss the types of information that can be provided by an AIS.
Describe the basic internal control objectives of an AIS and explain how they are accomplished.
Dr. Fred Barbee

4. Chapter 2: Overview of Business processes
April 19, 2017
Hi, I’m Susan. Pleased to meet you!
I’m Scott and I’m pleased to meet ya too!
Dr. Fred Barbee

5. Chapter 2: Overview of Business processes
April 19, 2017
Scott, our grand opening is only two weeks away!
Yeah, it’s a good thing we hired an accountant!
Dr. Fred Barbee

6. Chapter 2: Overview of Business processes
April 19, 2017
Hi folks, Ashton Fleming here!
Dr. Fred Barbee

7. Chapter 2: Overview of Business processes
April 19, 2017
Dr. Fred Barbee

8. Chapter 2: Overview of Business processes
April 19, 2017
Dr. Fred Barbee

9. Chapter 2: Overview of Business processes
April 19, 2017
Dr. Fred Barbee

10. Chapter 2: Overview of Business processes
April 19, 2017
Dr. Fred Barbee

11. Chapter 2: Overview of Business processes
April 19, 2017
Collect and store data
Provide information useful for decision making
Provide adequate controls
Dr. Fred Barbee

12. Chapter 2: Overview of Business processes
April 19, 2017
Dr. Fred Barbee

13. Chapter 2: Overview of Business processes
April 19, 2017
A transaction processing cycle combines one or more types of transactions having related features or similar objectives.
Dr. Fred Barbee

14. Chapter 2: Overview of Business processes
April 19, 2017
A transaction cycle consists of a set of transactions leading to the recognition of a major economic event on the financial statements
Dr. Fred Barbee

15. Chapter 2: Overview of Business processes
April 19, 2017
It is through the study of transaction cycles that we gain a clear view of a firm’s processing framework. (See Figure 2-1 p. 25)
Dr. Fred Barbee

16. Chapter 2: Overview of Business processes
April 19, 2017
Dr. Fred Barbee

17. Chapter 2: Overview of Business processes
April 19, 2017
Dr. Fred Barbee 13

18. Chapter 2: Overview of Business processes
April 19, 2017
Cost Flows in a Manufacturing Firm
Manufacturing Costs
Balance Sheet
Unused DM
DM Inv.
Used
Used
Unfinished DL
WIP
WIP Inv.
Product Costs
Applied
Conversion
Cycle
MOH
Finished
FG Inv.
Sale
Expenditure
Cycle
Sales
Revenue
Cycle -
COGS
Sold =
Income Statement
Gross Margin -
S&A
Period Costs =
Net Income
Dr. Fred Barbee

19. Chapter 2: Overview of Business processes
April 19, 2017
Labor
Customers
Fin. Goods
Cash
Materials
Cash
Plant
EXPENDITURE CYCLE
Subsystems
Purchasing & A/P
Cash Disbursements
Payroll
CONVERSION CYCLE
Subsystems
Production Planning and Control
Cost Accounting
REVENUE CYCLE
Subsystems
Sales Order Processing and Cash Receipts
Fin. Goods
Cash
Dr. Fred Barbee 4

20. Chapter 2: Overview of Business processes
April 19, 2017
Dr. Fred Barbee 13

21. Chapter 2: Overview of Business processes
April 19, 2017
Merchandising Shipments
Cash Receipts
Sale of Merchandise
GL & Fin Rpt Cycle
PP&E, Investments
Purchase of Mdse, & Labor, Etc.
Cash Disbursements
Merchandise Receipts
Dr. Fred Barbee

22. Chapter 2: Overview of Business processes
April 19, 2017 47
Dr. Fred Barbee

23. Chapter 2: Overview of Business processes
April 19, 2017
Merchandising Shipments
Cash Receipts
Sale of Merchandise
GL & Fin Rpt Cycle
PP&E, Investments
The Revenue Cycle
Spans activities from “Sale” to “Receipt of Cash
Key Transactions:
Sales
Cash Receipts
Purchase of Mdse, & Labor, Etc.
Cash Disbursements
Merchandise Receipts
Dr. Fred Barbee

24. Chapter 2: Overview of Business processes
April 19, 2017
Includes transactions surrounding the recognition of revenue.
Sales
Accounts Receivable
Inventory (some)
General Ledger (some)
Dr. Fred Barbee

25. Chapter 2: Overview of Business processes
April 19, 2017
Capturing and recording of customer orders;
Shipment of the goods and the recording of the cost of goods sold.
Dr. Fred Barbee

26. Chapter 2: Overview of Business processes
April 19, 2017
The billing process and the recording of sales and accounts receivable;
The capturing and recording of cash receipts.
Dr. Fred Barbee

27. Chapter 2: Overview of Business processes
April 19, 2017 47
Dr. Fred Barbee

28. Chapter 2: Overview of Business processes
April 19, 2017
The Expenditure Cycle
Spans activities from the “need” for resources/services to “payment” for that resource/service
Key Transactions:
Purchases
Cash Disbursements
Merchandising Shipments
Cash Receipts
Sale of Merchandise
GL & Fin Rpt Cycle
PP&E, Investments
Purchase of Mdse, & Labor, Etc.
Cash Disbursements
Merchandise Receipts
Dr. Fred Barbee

29. Chapter 2: Overview of Business processes
April 19, 2017
Includes the transactions surrounding the recognition of expenditures.
Purchases
Accounts Payable
Cash Disbursements
Inventory (some)
General Ledger (some)
Dr. Fred Barbee

30. Chapter 2: Overview of Business processes
April 19, 2017
The preparation and recording of purchase orders;
The receipt of goods and the recording of the cost of inventory;
The receipt of vendor invoices and the recording of accounts payable;
Dr. Fred Barbee

31. Chapter 2: Overview of Business processes
April 19, 2017
The preparation and recording of cash disbursements.
The cycle also includes the preparation of employee paychecks and the recording of payroll activities.
Dr. Fred Barbee

32. Chapter 2: Overview of Business processes
April 19, 2017
Dr. Fred Barbee

33. Chapter 2: Overview of Business processes
April 19, 2017
Collect and store data about the organization’s business activities and transactions efficiently and effectively
Dr. Fred Barbee

34. Chapter 2: Overview of Business processes
April 19, 2017
Capture transaction data on source documents.
Record transaction data in journals, which present a chronological record of what occurred.
Dr. Fred Barbee

35. Chapter 2: Overview of Business processes
April 19, 2017
Post data from journals to ledgers, which sort data by account type.
Dr. Fred Barbee

36. Chapter 2: Overview of Business processes
April 19, 2017
The resources affected by that event.
The agents who participate in that event.
The Event of Interest
Dr. Fred Barbee

37. Data Files
Process
Input
Output
Feedback Loop
Control
Sensor

38. Chapter 2: Overview of Business processes
April 19, 2017
Sales Order
Purchase Order O
Sales Invoice
Dr. Fred Barbee

39. Chapter 2: Overview of Business processes
April 19, 2017
Control over data collection is improved by prenumbering each source document.
Accuracy and efficiency in recording transaction data can be further improved if source documents are properly designed.
Dr. Fred Barbee

40. Chapter 2: Overview of Business processes
April 19, 2017
Input documents can be categorized into three types . . .
Source Documents
Product Documents
Turn-around Documents
Dr. Fred Barbee

41. Creation of a Source Document1 1
Data Collection 2
Order 3
Sales Order
Customer
Sales System

42. A Product Document Sales System Source Document 1 Data Collection 2
Order 3
Sales Order
Customer
Bill
Sales System
Remittance Advice
Product Document

43. Chapter 2: Overview of Business processes
April 19, 2017
A Turnaround Document
Source Document 1
Data Collection 2
Order 3
Sales Order
Customer
Bill
Sales System
Remittance Advice
Product Document
Check
Cash Receipts System 1 1
Remittance Advice
Dr. Fred Barbee

44. Chapter 2: Overview of Business processes
April 19, 2017
Source Document
Function
Sales Order
Record Customer Order
Delivery Ticket
Record Delivery to Customer
Remittance Advice
Receive Cash
Deposit Slip
Record Amounts Deposited
Credit Memo
Support Adjustments to Customer Accounts
Dr. Fred Barbee

45. Chapter 2: Overview of Business processes
April 19, 2017
Source Document
Function
Purchase Requisition
Request that purchasing department order goods.
Purchase Order
Request goods from vendors.
Receiving Report
Record receipt of merchandise.
Check
Pay for items.
Dr. Fred Barbee

46. Chapter 2: Overview of Business processes
April 19, 2017
Source Document
Function
W4 forms
Collect employee withholding data.
Time cards
Record time worked by employees.
Job time tickets
Record time spent on specific jobs.
Dr. Fred Barbee

47. Chapter 2: Overview of Business processes
April 19, 2017
General Ledger and Reporting System
Journal Voucher
Record entry posted to general ledger.
Dr. Fred Barbee

48. Data Files
Process
Input
Output
Feedback Loop
Control
Sensor

49. Chapter 2: Overview of Business processes
April 19, 2017
Updating previously stored information about the resources affected by the event and agents who participated in the activity.
Dr. Fred Barbee

50. Chapter 2: Overview of Business processes
April 19, 2017
Periodic updating of the data stored is referred to as batch processing.
Immediate updating as each transaction occurs is referred to as on-line, real-time processing.
Dr. Fred Barbee

51. Chapter 2: Overview of Business processes
April 19, 2017
An audit trail provides a means to check the accuracy and validity of ledger postings.
Dr. Fred Barbee

52. Data Files
Process
Input
Output
Feedback Loop
Control
Sensor

53. Chapter 2: Overview of Business processes
April 19, 2017
Ledgers and files provide storage of data in both manual and computerized systems.
The General Ledger
The Accounts Payable Ledger
The Accounts Receivable Ledger
Dr. Fred Barbee

54. Chapter 2: Overview of Business processes
April 19, 2017
A ledger is . . .
. . . a book of financial accounts, which reflect the financial effects of the firm’s transactions after they are posted from the various journals.
Dr. Fred Barbee

55. Flow of Information From the Economic Event to the General Ledger
Journal Entry
Order
Sales Order
Sales Journal
Customer
Post
Post
AR Sub Ledger
General Ledger
Periodically reconcile subsidiary ledger to General Ledger

56. Chapter 2: Overview of Business processes
April 19, 2017
A file is an organized collection of data.
Files may be
Manual
Computer (magnetic)
Dr. Fred Barbee

57. Chapter 2: Overview of Business processes
April 19, 2017
A transaction file is . . .
. . . a collection of transaction input data - normally temporary in nature.
Dr. Fred Barbee

58. Chapter 2: Overview of Business processes
April 19, 2017
A master file is . . .
. . . a collection of data that are of a more permanent or continuing interest
Dr. Fred Barbee

59. Chapter 2: Overview of Business processes
April 19, 2017
A reference (table) file . . .
. . . contains data that are necessary to support data processing
Dr. Fred Barbee

60. Chapter 2: Overview of Business processes
April 19, 2017
Dr. Fred Barbee

61. Chapter 2: Overview of Business processes
April 19, 2017
To provide management with information useful for decision making.
Dr. Fred Barbee

62. Chapter 2: Overview of Business processes
April 19, 2017
This information is provided in the form of reports that fall into two main categories:
financial statements
managerial reports
Dr. Fred Barbee

63. Chapter 2: Overview of Business processes
April 19, 2017
Provide adequate controls to ensure that data are recorded and processed accurately
Dr. Fred Barbee

64. Chapter 2: Overview of Business processes
April 19, 2017
Ensure that the information produced by the system is reliable.
Safeguard organizational assets.
Dr. Fred Barbee

65. Chapter 2: Overview of Business processes
April 19, 2017
Ensure that business activities are performed efficiently and in accordance with management’s objectives.
Dr. Fred Barbee

66. Chapter 2: Overview of Business processes
April 19, 2017
What are two important methods for accomplishing these objectives?
Provide for adequate documentation of all business activities.
Design the AIS for effective segregation of duties.
Dr. Fred Barbee

67. Chapter 2: Overview of Business processes
April 19, 2017
Documentation allows management to verify that assigned responsibilities were completed correctly.
Dr. Fred Barbee

68. Chapter 2: Overview of Business processes
April 19, 2017
Segregation of duties refers to dividing responsibility for different portions of a transaction among several people.
Dr. Fred Barbee

69. Chapter 2: Overview of Business processes
April 19, 2017
What functions should be performed by different people?
authorizing transactions
recording transactions
maintaining custody of assets
Dr. Fred Barbee

70. Authorization
Recording
Custody

71. Preventive
Detective
Corrective